When a slow-paying customer becomes a revenue recognition problem

ASC 606 has a clause that most collections conversations never reach: if collectibility of the transaction price isn't probable at contract inception, you may not be able to recognize revenue at all. A customer who stops paying is not only an AR problem. On the books, it can retroactively be a revenue problem.

The clause nobody argues about until the auditor finds it

Under ASC 606-10-55-3E, an entity recognizes revenue only when it's probable it will collect the consideration to which it's entitled. Probable is a high bar, and it's assessed at inception—not at the moment the invoice goes red. If the customer's credit standing was shaky when you signed, or the contract's payment terms created a real question, the audit trail matters more than the invoice.

The practical consequence: a Controller who can't show that a receivable was collectible when booked may face a revenue restatement, not just a higher DSO. That's a different weight class of problem.

What the file has to show

When the auditor asks why a 200-day balance is still on the books at full value, three things carry the answer:

• A credit review at contract inception—D&B, payment history, anything that justified "probable"
• Documented collection activity after delinquency—who you contacted, when, and what they said
• A write-off or reserve decision that matches the account's actual age and behavior

Why early placement is an accounting control, not a sales pitch

An account placed at 90 days carries a documented, third-party collection effort. An account that sits at 200 days carries a growing question about whether the revenue was ever recognizable. Agencies like ours don't just chase the balance—the activity record we build becomes part of your collectibility evidence. That's why the CFOs we work with place at a trigger, not at a feeling.

When the answer is a write-off, say so

The reserve conversation is where most software finance teams get stuck, because writing off feels like admitting failure. It isn't. A documented charge-off, supported by a real collection attempt, is what the auditor wants to see—it's clean, it's conservative, and it ends the question. We'll tell you plainly when an account has reached that point. That honesty is why clients send us the aging report instead of hiding it.

If a slow customer is sitting in your receivables and the books are about to close, send us the aging report and the contract. We'll tell you what's collectible, what's evidence, and what's already a write-off—free, within one business day.